Profit down but optimism up

Into its 11th year, the report has undergone some subtle changes, particularly when it comes to monitoring the situation in Hawke's Bay. A review in 2013 resulted in the report moving towards gross margins of dominant grape varieties, rather than a vineyard model. The model format has been retained for Marlborough, although a Pinot Noir gross margin section has also been included.

Given 2014 was a stellar year for growers around the country due to increased yields, it was inevitable that profits would be down in 2015. However the actual drop was higher than most growers had predicted.

Marlborough

In the case of Marlborough, the model is a 30-hectare producing vineyard, with data collected from 31 vineyards. Of those, 23 were contract growers and eight were winery operated vineyards. Sauvignon Blanc is the dominant grape variety in the model, representing 74 percent of the producing area, followed by Pinot Noir, Chardonnay, Pinot Gris and Riesling.

In Marlborough the profit before tax was reduced by 50 percent this year, when compared with 2014. That is a direct result of a 26 percent drop in yields.

There were a number of reasons for that yield drop – the impact of heavy crops last year, a number of frost events in late spring, cooler weather during flowering, significant powdery mildew pressure and the drought which affected berry size and bunch weights.

Wineries responded to the expected lower yields, by increasing the price paid for fruit – up five percent in 2015, a little more than had been predicted by growers.

The average price was $1810 across all varieties. Sauvignon Blanc averaged $1710, Pinot Noir (table) averaged $3220 and Riesling was $1785. Both Chardonnay and Pinot Gris prices remained similar to 2014 figures.

In terms of expenditure, the Marlborough model shows working expenses were marginally higher this year. Weather played a role in those expenses, with irrigation costs up significantly due to the drought. Marlborough vineyard irrigation increased 44 percent in 2015, when compared with the average of 2005-14.

While the smaller crop meant manipulation wasn't a major cost for growers, they did face higher labour costs dealing with the impact of powdery mildew.

A number of growers involved in the model spent on new developments, which MPI says is "representative of some significant new development around the region."

Looking ahead to 2016, the growers were keen to see a rise in prices paid for fruit.

"Many of the monitored contract growers mentioned that grape prices were still generally flat and they would like an increase. With reduced 2015 yields and a supply deficit forecast, this is possible in 2016."

Grower morale was positive with the growers generally optimistic about their business. The group is also looking towards improving business viability.

"The most significant of these is further new development including purchasing or leasing land or developed vineyards. Nurseries are also reporting strong demand for grape vines, with a total of approximately 2500-3000 additional hectares planted in 2014 or planned for 2015. While a small amount of this is expected to be redevelopment of existing vineyard, it indicates an increase of at least five percent in national vineyard area."

Hawke's Bay

The change of direction to gross margins calculates the revenue less direct expenses for growing, harvesting and marketing the crop. It does not take account of overheads such as administration, debt-servicing, tax, drawings or development and capital spending.

The three varieties the report is based on are; Merlot, Sauvignon Blanc and Chardonnay.

As in Marlborough, yields in 2015 were well down on last year. Across all varieties the drop was 19 percent. The Sauvignon Blanc yield was 26 percent lower than 2014, Chardonnay was 15 percent down and Merlot was eight percent lower than 2014. Those drops were deemed to be a result of reduced carbohydrate levels after the heavy 2014 crops, and cool, wet weather over flowering, reducing pollination.

Sauvignon Blanc

The gross margin for this variety was $6640 per hectare, the equivalent of $715 per tonne, well below that of Merlot and Chardonnay. Yields averaged out to 9.3 tonnes per producing hectare, well down on last year, and slightly lower than the last five year average of 10 tonnes.

Price wise, the average was $1500 per tonne, a substantial increase of $280 a tonne when compared with the five-year average for the region.

Chardonnay

Gross margin for this variety in 2015 was $5360 per hectare, or $815 a tonne.

The report says the yields were lower than last season, but in line with typical yields over the past six years. However quality was reported to be very high, with many of the growers monitored claiming Chardonnay as the stand out variety of the 2015 vintage.

The average price was $1915 per tonne, which is marginally lower than the previous season, but similar to the two previous years.

"Demand for Hawke's Bay Chardonnay appears to be strong and underpinning the price increase that occurred in 2013."

Merlot

It was a good year for Merlot growers, with the gross margin for this variety being $9610 per producing hectare, which was equivalent to $1060 per tonne – the highest of all three varieties.

The average yield was 9.1 tonnes, slightly down from the last two years, but on a par with the five-year average. The average price paid for Merlot was $1925, essentially the same as Chardonnay.

"Merlot showed the most price variability between growers of all three reported varieties in 2015," the report states. "Prices for Merlot have followed a steadily increasing trend since the low of 2012. Current prices now marginally exceed those of 2008-10."

Conclusion

Growers in Hawke's Bay are benefitting from three very good years in terms of quality of fruit. While they feel the future is looking positive for the New Zealand wine industry as international demand for Marlborough Sauvignon Blanc is high, they do have concerns over the reliance on that variety.

"Seasonal fluctuations in Sauvignon Blanc yield in Marlborough are seen as a risk to the Hawke's Bay wine industry," the report states. "Growers have voiced their concern that better systems need to be in place to predict yields to ensure all growers and wineries have accurate information to manage production and supply."

The growers also expressed concern that the New Zealand wine industry's reputation is at risk, due to the export of inferior quality bulk wine, particularly Marlborough Sauvignon Blanc. However they were optimistic about the growth in the Chinese market, with its preference for lower acid, more tropical Hawke's Bay style white wines.

While past monitoring has only included Marlborough and Hawke's Bay, MPI spokesman Nick Dalgety says working alongside NZW, there are now plans to expand in the future.

"In 2016 gross margin assessment by variety expands into Gisborne, Marlborough and Central Otago. This should paint a fuller picture of geographical industry diversity. We hope that this initiative along with other collaborative action with NZW like the Lifestyle Wines programme will help keep New Zealand ahead of its competitors in the world wine market."